A blog designed to provide an outlet for Jeff's and other unvarnished opinions on community financial institutions. Sometimes serious, other times not, Jeff's opinions are his own and may not represent the opinions of his esteemed employer.

Saturday, August 02, 2014

Dear Mr./Ms. Bank Regulator

My firm will occasionally provide feedback on correspondence to our clients' regulators. Today we did just that. Our advice: don't come off as combative. Since hitting send on that e-mail, I reflected on how a half Italian, half Irish firebrand like myself became so melancholy.

Truth is, I haven't. I thought about what we should have said to the regulator, versus the sweet words I was encouraging our client to use. I mentioned to him that we should keep two versions of the letter: one that we will send crafted to get our intended result, and one that says what we mean. Below is a sample letter to your regulator, saying it like you mean it.

Below is our response to the Matters Requiring Attention ("MRA") that were included in your most recent examination report on Schmidlap National Bank ("Schmidlap").

Although our Tier 1 leverage ratio is greater than 10%, you criticized us for our stress scenarios contained in our capital plan. You opined they lacked analytic rigor. Aside from the clear lack of analytic rigor you exercised to come to this conclusion, it is important to remind you that estimating future negative events that impact our capital is guesswork. We like our guesses better than yours, and our spreadsheets are bigger than yours. So, no, we are not re-doing our capital plan.

Our level of investor commercial real estate is trending closer to your guidance levels. We get that. What you suggest we do is create greater diversity in our loan portfolio. We have a lot of small restaurants in our markets that can pledge pizza ovens as collateral. We are now training our lenders on pizza oven market valuations and setting a pizza oven loan to value limit in our loan policy. We will be dispatching lenders to pizza shops up and down our valley in the coming months. Mangia!

In the management section, you had two items for us: our succession plan and strategic risk. If I win the lottery, Frank will take my slot. If Frank gets hit by a beer truck, Jane is up to the task. If Mary goes buh-bye, Alex will step in. There's our succession plan. The Board is a little more difficult, because getting local luminaries to get paid twenty five grand a year to put up with your bullsh*t is difficult. We're working on it.

In terms of strategic risk by the recent new products and delivery channels we have added, we will need further definition from you on "strategic risk". When sending your clarifying statement, also send your resume containing the qualifications you possess to dictate product and delivery channel strategies. Also, please clarify the definitions contained within CAMELS, because we didn't think the S meant strategic. If our memory serves correctly, and the S does not stand for strategic, then we don't give a rats a** what you think about our products and delivery channels.

We recognize that there are so many laws and regulations that apply to banks that you can couch any criticism you have for us under some law, such as the Truth in Lending Act. It reminds me of high school geometry, when the teacher asked me to solve for a triangle, I would say "CPCT", knowing it could be so. So you can say, "I don't like this checking account... BSA/AML", and I would have to enlist regulatory attorneys to investigate the matter only to come to the conclusion that "you can't fight Uncle Sam".

That, Mr. Whatshisname, is the definition of tyranny. And Schmidlap is not gonna take it.

About Me

Jeff started his banking career in the IT Department of a northeast regional bank in 1985. His banking experience includes IT, Trust, branch management, and merger integration. He has served as a consultant to the banking industry since 1997, specializing in strategy development, M&A, and profitability. He interrupted his banking career to serve in the U.S. Navy, the best Navy in the world, where he specialized in intelligence gathering against very bad people. He lives in Lancaster County, Pennsylvania with his wife and two children.